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Animation and Gaming Industry in India Market Research

Animation and Gaming Industry in India Market Research Market Study On Animation and Gaming Industry in

Market Study On Animation and Gaming Industry in India

1.Executive Summary

Table of Contents

  • 2. Animation and Gaming Industry Overview

    • 2.1 Scope of the Industry

    • 2.2 Context

    • 2.3 Global Animation and Gaming Industry

    • 2.4 Indian Animation and Gaming Industry

      • 3. Indian Animation and Gaming Industry: Key Segments

      • 4. Animation Entertainment

        • 4.1 Movies

        • 4.2 TV Broadcast

        • 4.3 TV Advertising

        • 4.4 Direct to DVD

        • 4.5 Service Models

        • 4.6 Revenue Models

        • 4.7 Animation Entertainment Key Players

        • 4.8 Animation Entertainment Challenges

          • 5. Animation Entertainment (VFX)

5.1

Growth Indicators

5.2

Revenue Model

5.3

Key Players

5.4

Challenges

6.

Custom Content Development

6.1

Growth Indicators

6.2

Service Models

6.3

Revenue Model

6.4

Key Players

6.5

Challenges

7.

Gaming Industry

7.1

Global Gaming Industry

7.2

Indian Gaming Industry

7.3

Console Gaming

7.4

Mobile Gaming

7.5

PC Gaming

7.6

Online Gaming

7.7

Service Models

7.8

Revenue Models

7.9

Key Players

  • 8. Challenges

  • 9. International Outsourcing Trends Implications for India

    • 10. Domestic Trends Implications for India

    • 11. Supply Side Constraints

    • 12. Recent Deals in the Animation and Gaming Industry

    • 13. Future Outlook

    • 14. Player Profiles

      • 14.1 Crest Animation Studios Ltd.

14.3

Prime Focus

  • 14.4 Visual Computing Labs (VCL), a division of Tata Elxsi

  • 14.5 Tata Interactive Systems

  • 14.6 India games

  • 14.7 Dhruva Interactive

  • 14.8 Trine Entertainment

1. Executive Summary

The Animation and Gaming Industry in India has undergone a significant change in recent years. The high expectations of 2006-07 have not been realized, primarily due to the economic downturn. However, the Indian players have evolved by moving up the value chain and adopting new service / revenue models. This report attempts to present an overview of the various segments of the industry (including the size, growth drivers, recent trends, challenges and future outlook) and profiles some of the leading players.

Animation

The market in India is estimated at USD 500 million in CY 2009 and is expected to grow at a rate of ~23% p.a. to reach USD 1161 million by 2013. The animation industry in India has three key segments: Animation Entertainment, Entertainment Visual Effects (VFX) and Custom Content Development. Among these segments, Custom Content Development is the largest (~50%) followed by Animation Entertainment and Entertainment VFX. However, it is the Entertainment VFX segment which is expected to grow the fastest at ~28% p.a. Almost 70% of the revenues of the Indian Animation Industry are from the outsourcing work done for the overseas clients. Though the demand in domestic market is picking up, this trend is expected to continue.

Key drivers expected to influence the growth of Animation Industry in India are:

Increased Outsourcing by Overseas Players: The recent economic slowdown has

forced the organizations to increase focus on cost reduction leading to greater outsourcing to Asian countries, both for Animation entertainment outsourced by overseas production houses and custom content development outsourced by the corporate sector. Greater outsourcing share for Indian players: Indian players currently command

only~8% of the outsourcing work. This is expected to increase, especially with increasing recognition of the Indian players in terms of providing timely and quality work. Significant evolution of Indian Players: Indian players have moved up the value

chain by developing animation content end-to-end. Moreover, the players are increasingly adopting the „Co-Production‟ model (Revenue-Sharing). This trend opens high revenue opportunities for the Indian players. Increasing usage of Visual Effects in Bollywood is expected to give a boost to the industry.

Increasing adoption of e-Learning by corporate sector and higher education

institutions in India is a significant opportunity for Indian players, offering „Custom

Content Development‟.

Gaming

The Indian Gaming market is estimated at USD 239 million for CY 2009 and is expected to register a growth rate of 53% p.a. to reach 1298 million by 2013. This includes the revenues both from the consumer market and the services market. The gaming industry comprises four segments Console, Mobile, PC and Online. Console gaming has the highest share of 42% followed by mobile with 28%. Similar to animation, the gaming services industry also derives most of its revenues from the outsourcing services.

Key growth drivers for the Indian Gaming Industry are identified as under:

 
 

Increased Outsourcing: Similar to Animation, Gaming players overseas are

Key Challenges

increasingly focusing on cost reduction leading to greater outsourcing. Increased share for Indian players: Indian players currently command only ~1% of

the outsourcing market. As the skill-sets of the Indian players improve, this share is expected to go up. Increased demand for Gaming (Global & Domestic): Globally, gaming is expected to

 

continue its growth especially with the trend of Massive Multi-Player Online Role Playing Games (MMORG) picking up. This is expected to lead to more development, testing and porting work for Indian players. Gaming, especially mobile gaming in India is expected to go up on account of increasing mobile and internet penetration coupled with increased affordability due to falling prices of games.

The Indian Animation and Gaming industry holds a large potential. However, it faces numerous challenges in realizing the potential:

 

Significant talent crunch due to limited training institutions, non-standardized

curriculum and lower awareness among students for animation and gaming as a career option. Cultural Constraints: Animation as an entertainment genre in India is still restricted to kids. Similarly, gaming as an entertainment option is not considered favourable in India.

Lack of government support in terms of grants, rebates or tax treaties: This limits the cost advantage that Indian players offer compared to other outsourcing destinations, thus limiting the growth of the industry.

2. Animation and Gaming Industry Overview 2.1 Scope of the Industry

Animation is a process under which different drawings of imagined action (called frames) representing a slight shift in the positioning of content are recorded in such a way that it gives an illusion of motion when shown at a predetermined rate. In a nutshell, it is a time sequencing of frames to create a simulation of continuous movement.

„Animation and Gaming industry‟ includes

Animation Entertainment for Theatrical Movies, TV Broadcast, Advertising, Direct-to-

DVD Movies / Shows Visual Effects for Entertainment

Content Development for e-Learning / Training for Special Segments

Gaming

„Animation industry‟, when referred to, in this report, includes all of the above, except

Gaming.

2.2

Context

Indian animation and gaming industry, comprising pre-dominantly small and mid-sized enterprises is not a well-researched or well-documented industry. We have analysed

information available from India‟s industry body NASSCOM (National Association of

Software and Services Companies), recent developments of relevant organizations and used certain broad indicators (Domestic and Overseas) in this report to assess the industry.

  • 2.3 Global Animation and Gaming Industry

The global animation and gaming industry has grown from USD 74 billion in CY1 2005 to an estimated USD 115 billion in CY 2009, at a rate of 12% p.a. The industry is expected to continue its growth, at a rate of 10% p.a. to reach USD 170 billion by CY 2013.

Global Animation And Gaming Marketing

Axis Title 2005 2009E 2011P 2013P Series 1 74% 115% 140% 170%
Axis Title
2005
2009E
2011P
2013P
Series 1
74%
115%
140%
170%

The US is the most significant market for animation in the world.

35 30 25 20 15 10 5 0 US France Germany Spain 3 2 1
35
30
25
20
15
10
5
0
US
France
Germany
Spain
3
2
1

Major markets for gaming are US, Europe and Japan; US again being the largest gaming consumer. However, China is the fastest growing market for gaming, primarily due to the

Game Publishers Geographic
Game Publishers
Geographic

Nintendo

Electronics Arts(EA)

Activision Blizzard

US

43.2%

57%

50%

Europe

39.5%

38%

43%

Japan

12.9%

5%

7%

Rest of Asia

4.4%

   

rapid growth of online gaming. Most of the animation and gaming intellectual properties originate from these countries. While content development and pre-production activities are generally done in the originating country itself, it is the labour-intensive activities, which are outsourced to other countries

2.4 Indian Animation and Gaming Industry

The Indian Animation and Gaming industry has grown from USD 243 million in CY 2005 to an estimated USD 739 million in CY 2009 at a rate of 32% p.a

In spite of the fast paced growth, Indian animation and gaming industry continues to be a

Miniscule 0.6% of the global industry (Refer Exhibit 5), thus holding a large potential for growth. The Indian industry is expected to continue its growth at 35% p.a. during 2009- 2013, thus reaching a market size of USD 1.3 billion by 2011 and USD 2.5 billion by

2013.

The Indian animation and gaming industry derives its revenues from both domestic and outsourcing work. Outsourcing is the major contributor of revenue. Work done by the Indian studios for the international production houses or work done by game development

companies for international game publishers are examples of „outsourcing work‟. The

domestic share of animation market is estimated at ~ 30% (CY 2009). India caters primarily

to US and UK for the outsourcing work for animation.

The success of Indian IT/ITES industry and the inherent advantages of outsourcing make a case for India as an outsourcing destination of choice to production houses / game developers the world over. In spite of this, India‟s share of the outsourced work is very low. Industry experts estimate that India‟s share is 8% for animation and as low as 1% for

gaming. Major Asian countries like Philippines, Taiwan, South Korea and China are the preferred outsourcing destinations for 2D Animation, Canada and UK are the leaders in 3D Animation. For gaming, China is the most preferred destination followed by other Asian destination

Indian outsourcing share for animation and gaming industry is miniscule compared to the Indian IT and BPO industry, which has garnered a significant share of ~51% of the

global IT and BPO outsourcing market. The above shows the immense potential that the Indian animation and gaming industry holds, especially from overseas outsourcing.

3. Indian Animation and Gaming Industry : Key Segments

The Indian Animation and Gaming industry has four key segments Animation Entertainment, Entertainment VFX, Custom Content Development and Gaming.

Animation and Gaming Industry Animation Entertainment Custom Gaming Entertainment Content Developmentnt
Animation and Gaming
Industry
Animation
Entertainment
Custom
Gaming
Entertainment
Content
Developmentnt

Custom Content Development holds the highest revenue share (51%) among all segments. This segment comprises development of custom content catering to many segments (Corporate, Higher Education, Specific segments viz. Aviation, Medical etc.), multimedia and web-designing services. This segment is estimated to show a CAGR of 23% for the period 2009 to 2013. Animation Entertainment is the next largest, accounting for 21% of the overall revenues. Animation entertainment comprises animated content for movies, TV broadcast, TV advertising and direct to DVD. This segment is expected to grow at 20% p.a. from 2009 to 2013. Entertainment VFX is estimated to be ~ USD 83 Million. It is expected to continue its growth at 28% p.a. from 2009 to 2013. Gaming in India is estimated at only ~ USD 239 Million. However, this segment is expected to show a high growth of 53% p.a. from 2009 to 2013. This segment comprises Console Gaming, Mobile Gaming, PC and Online Gaming.

4. Animation Entertainment

The Animation Entertainment segment in India is estimated at USD 122 Million (CY

2009) and is expected to show a CAGR of 20% (2009-2013) to reach USD 253 million by

2013.

74% of the animation entertainment work in India is outsourcing work for overseas clients. It is only 26% of the overall animation entertainment in India, which is for domestic clients.

Most of the outsourcing work in India relates to the labour-intensive production and postproduction activities. Production is the dominant activity. Content Development and preproduction activities are nascent in India, both for the domestic and the outsourcing market. However, these activities are seen to be emerging as Indian companies move up the value chain (Refer Exhibit 12)

The Indian animation entertainment industry comprises four sub-segments: Movies, TV Broadcast, Advertising and Direct to DVD.

The TV Broadcast segment is estimated to be the largest one amongst all the sub segments at a percentage share of 50%, followed by Direct to DVD at 25%, movies at 20% and TV advertising at 5% of the overall entertainment revenues.

4.1 Movies

The Animation Entertainment movies segment is estimated at USD 24 million for 2009. Domestic market contributes a significant USD 17 million (71%) to this USD 24 million.

4.1.1 Growth Indicators Animation movies segment is expected to show significant growth on account of demand from both domestic market and overseas. Domestic Demand Low % of animation movies in India currently and future plans of the Indian film industry indicate high growth potential for animated movies in India. <1% of the movies released in India are animated in nature. This is miniscule compared to the US, where animated movies comprise ~6.3% of the overall no. of domestic releases (Refer Exhibit 15).

Moreover, the no. of domestic film releases in India has been growing at a healthy 14% p.a. (FY 2006 to FY 2008) (Refer Exhibit 16) and is expected to continue this trend. This growth in overall movies, along with the significant scope for increase in % of animated movies signifies the large potential for animation movies in India. This is further validated by the fact that there has been an increase in the number of animation movie releases from 2006 to 2008 (Refer Exhibit 17).

The Indian film industry announced 85 animation movies in 2008, with almost all the major production houses trying to jump on the bandwagon. However, with the economic downturn and low success of the non mythology animation movies released last year, many announced projects have been shelved. Despite this, the entertainment industry is expected to see a significant increase in the number of animation movie releases. Compared to 6 such movie releases in 2008, there are 28 movies in the pipeline and are in different stages of conceptualization / production. Out of these, 15 movies are expected to get released in the next two years. Moreover, Comics‟ players‟ keen-ness to monetize their existing characters has resulted in their entering the animation movie market.

Indian publishers like Diamond, Raj, Vimanika and Chandamama have announced plans to enter the movie space with their famous comic characters

Toonz Animation India Pvt. Ltd is producing a full-length animated feature film based on a prime property from the library of Chandamama for an estimated amount of USD 4.5 million

Filmmaker Anurag Kashyap has bought the rights of Raj Comics‟ popular character

Doga.

Demand from Overseas Overseas demand can be attributed to two factors: Increased animated content overseas and increase in work outsourced to India.

Increased animated content overseas

Animation movies released in US have increased at 8% CAGR from 2006 to 2008.

This trend is expected to continue, considering the success of these animation movies. This success is reflected in the high worldwide box office earnings of these movies (Refer Exhibit 19).

This whopping success and profits of animation movies overseas are expected to propel production houses to produce more animated movies. Movies in the pipeline for the two biggest animation houses in the world Disney Pixar and DreamWorks proves the inclination of production houses towards greater animation movies: Disney Pixar released 8 movies in the last two years. It plans to increase the number to 13 movies from 2009-2012. Similarly, DreamWorks plans to produce 5 movies every two years from 2009 compared to 2 movies a year previously. Moreover, as seen in Exhibit 19, budgets for the animation movies have increased considerably from the 2006 levels. However, in view of the recent economic downturn, the budgets of animation movies are not expected to increase, rather stay at the current levels.

Increase in work outsourced to India

Higher focus on „Cost Savings‟ coupled with India‟s cost competitiveness and

demonstrated capability to deliver quality work is expected to drive increase in work being outsourced to India by production houses.

The economic downturn has put cost on the top of the priority list of the production houses. Production houses are cutting their costs by outsourcing more work to Asian

countries which offer significant „Cost Savings‟. India offers significant cost savings (>

75%) to production houses overseas (Refer Exhibit 20). Nasscom estimates that the cost of production of a full length animated movie in India is USD 13 million to USD 22 million,

where-as it costs USD 71 million to USD 106 million to produce the same movie in US. Moreover, the Indian players have showcased that they can deliver quality work, at par with their other Asian counterparts. Production houses overseas have recognized this capability of the Indian players, which is evident from the numerous co-production deals between Indian and overseas players.

The following co-production deals have been announced in the recent past:

Three-movie co-production deal between Crest Animation Production and Hollywood film entertainment studio Lionsgate Toonz Animation and South American studio, Illusion Studios Two-movie deal between DQ Entertainment and Paris based entertainment company MoonScoop As the perceived capability of Indian players grows, the percentage of outsourcing to India is expected to go up.

4.2 TV Broadcast

The work done by animation companies for TV Broadcast is estimated at USD 61 million for 2009. More than 90% of the animation entertainment TV Broadcast accrues from outsourcing.

4.2.1 Growth Indicators

This segment is expected to grow on account of demand from both domestic and Overseas markets. Domestic Demand

The increase in number of kids‟ channels and the resulting increase in demand for local

content are expected to drive the demand from the domestic market Increasing No. of Kids Channels Cartoon Network was the first one to enter the Indian kids TV broadcast market in 1995. Since then, there has been a significant increase in the number of kids channels launched in India.

The share of kids‟ genre in overall viewer-ship has steadily increased from 4.1% in 2002 to reach 16.6% in 2009 (Refer Exhibit 23). Sustained increase in viewer-ship would drive

demand for content for kids, especially animated content. Moreover, Indian comics players are planning to launch their own cartoon / kids channels. For example, Diamond comics has already announced plans to launch a TV channel targeted at the 4 to14 year age group with both animation and live action content.

Increased Demand for Original Indian Content

Demand for original Indian content by the cartoon / kids‟ channels has been increasing. For example, Cartoon Network– the leader in the cartoon channels‟ space has increased its original Indian content from 50 hours in 2004 to more than 200 hours in 2009.

Similarly, Nickelodeon, inspired by the success of the mythological serial „Little Krishna‟, is looking to expand its local content. The same trend is expected to be followed by other channels as well. Growth in original local animation content is expected to get a further boost from Indian comics players like Diamond, Raj, Vimanika and Chandamama who are looking to monetize their content libraries by creating market presence in TV programs. Large production houses are also buying rights from these publishers to produce animated TV series: Big Animation Pvt. Ltd has bought rights from publishers of Chandamama to produce an animated TV series. Moreover, a significant number of nontheatrical movies are in pipeline for TV broadcast (Refer Exhibit 25), some of the key examples being Kul Veera, Sulochana etc.

Demand from Overseas Increased focus on cost savings in view of the economic downturn and improved capability of Indian animation players are expected to fuel the demand for TV Broadcast animation from overseas. Cost Arbitrage Similar to animated movies, India offers significant cost savings for production of animated TV serials. Production in India may offer savings to the extent of 78% to production houses overseas.

• Percentage of work outsourced to India

The proven capabilities of Indian players, with on-time delivery, excellent quality work have brought them at par with other Asian outsourcing hubs. The Indian players are now slowly moving towards the higher end of the animation TV broadcast value chain as well. Capability of the Indian players is also being increasingly recognized, as is evident from the increasing „Co-production‟ deals:

and

DQ Entertainment has been involved in over 30 global Co-Production deals with many leading companies like BBC UK, American Greetings Properties, USA, M6,

France and alike. Toonz Animation‟s co-production deal with Spectra Animation of Canada to coproduce

52 episodes of a Malayalam animated TV serial „Paddy‟s Pages‟.

Sanraa Media‟s deal with UK based Endemol for the co-production of animated series The 99. Improved perception of the Indian animation players‟ capability is expected to lead to greater percentage of outsourcing to India.

4.3 TV Advertising

Animation Players are projected to have earned revenues of USD 6 million through work done for TV Advertisers for 2009. Most of these revenues accrued from the domestic market. 4.3.1 Growth Indicators Increasing advertising spend of the Indian companies coupled with growing popularity of animated characters is expected to drive the domestic market. Demand from overseas is also expected to start picking pace as the Indian animation players gain experience at animation for commercials. Domestic Demand Indian TV advertising spend is minuscule (0.47% of the GDP) as compared to the US (1.34%) or UK (0.95%), thus holding large potential for growth.

The Indian TV advertisement industry size is expected to increase from USD 1.9 billion in 2009 to USD 3.3 billion in 2013 at a CAGR of 15%. As the advertising industry grows, it is expected that the share of animation driven advertisements will also grow. Growing popularity of animated characters in Indian advertising illustrates the point: Animated

advertisements strike a better chord with the target group of children and young adults, can be easily understood and related to by audiences irrespective of language and cultural barriers. Some of the recent advertisements in India that have used animated characters – “Daddu” (Mentos), “Chinta Mani” (ICICI prudential), “Sukhi and Dukhi” (Tata AIG), have been quite popular. Moreover, the animation commercials also result in significant cost savings compared to advertisements with celebrities, making another point for their increased usage. Demand from Overseas As of now, the Indian animation players do not get any significant work from overseas for advertising. However, increasing usage of animation in TV advertising in India is

providing the Indian players with the required experience and capabilities. As the overseas production houses and advertising agencies face cost pressures and recognize the capabilities of Indian players, advertising outsourcing deals for India are expected to happen over a period of time. 4.4 Direct to DVD Animation Entertainment Direct to DVD is estimated at USD 31 million for 2009. Domestic market contributes a miniscule 10% (USD 3 million) to this USD 31 million.

4.4.1 Growth indicators Domestic Demand The Indian home video market has grown at 23% p.a. for 2005-2009.

The increase is expected to impact demand for animated content also. There is increase in retail reach of DVDs in India. Moreover, falling prices of CDs / DVDs is leading to increased affordability. Improved penetration and affordability are expected to drive the growth of the Indian home video market at 13% p.a. from 2009-2013. This trend is expected to encourage greater production of direct-to-DVD content in India.

Demand from Overseas

Direct-to-DVD animation content in overseas markets and the extent of outsourcing primarily determine the demand for animation services for Direct to DVD in India. Lower Direct-to-DVD (DVD Premieres) Overseas Direct-to-DVD (DVD Premieres) in the US has seen a very high growth of 72% from 2006 to 2009. However, the DVD sales / rentals market has stagnated and is showing a downward trend from its highs of 2005-06.

However, the advent of new channels like on demand television and online distribution is expected to keep up the demand for DVD Premiere. Increased Outsourcing The cost differential of producing Direct-to-DVD animated content between US and India is very high. Nasscom estimates that it costs USD 3 million to USD 5 million in India for an animated DVD compared to USD 9 million to USD 12 million in the US (Refer Exhibit 32). As discussed earlier, the increased focus on cost savings is expected to lead to greater outsourcing to Asian countries. As capabilities of Indian players get recognized by international studios, Indian players would gain a significant share of the outsourcing opportunity in the Direct to DVD Segment.

4.5

Service Models

Players in the animation entertainment industry in India follow various service models. Every player in the industry follows one or more of these service models.

The animation entertainment service models lie along different parts of the value chain. Depending upon the service model that a player adopts, he can be present across the value chain or in certain specific parts of it. Players also adopt multiple service models:

for e.g. the same player may operate on „service delivery model‟ and „co-production‟ model, varying from one deal to the other. 4.6 Revenue Models The players in the animation entertainment industry can realize revenues from different sources depending upon the model that they adopt. The different revenue models for the entertainment industry are:

As players adopt multiple service models, they would also have multiple revenue streams.

  • 4.7 Animation Entertainment Key Players

The Indian animation entertainment industry is a fragmented industry, with the top 10 players contributing less than 20% of the industry revenues. Moreover, they compete along the different stages of the value chain. There are players who are present across all the stages of the value chain and there are others who provide services during specific stages of the value chain only. Some of the key players have been listed below, along with their presence in the value chain:

While the Indian animation industry holds a large potential in terms of both domestic and overseas demand, the industry needs to overcome significant challenges to realize this potential:

Lack of Skilled Manpower Skilled man-power is the key for producing animated content. The Indian animation industry is constrained on the talent supply side. As per Nasscom Industry Report 2009, manpower requirement for animation in India is expected to grow from 17,500 in 2009 to 29,500 by 2012. However, there are not enough resources available in this industry, and those who are available are not readily employable. This is primarily due to the following reasons:

Low awareness of animation as a career option: This is especially true of Tier-2 and Tier-3 cities in India.

Existence of only a handful of institutes that provide relevant courses / degrees in animation and gaming, the leading institutes in this domain being National Institute of Design, Toonz Academy, Maya Academy, Arena Animation.

Lack of standardized and quality curriculum: Post-graduate / Degree / diploma

courses in animation are few in no. in India. Curriculum is not up to the international standards, thus decreasing the employability of students in India.

Lack of Funding Animation Entertainment industry in India pre-dominantly comprises small and medium sized players operating across similar / different parts of the value chain. Currently, only 1 out of 5 movies in India are successful, making the production of Animation films very risky. Players are not able to raise the required finance. IP Protection Rampant piracy of DVD-Based videos within the distribution channel eats into a major share of revenues for the producers and distributors. This along with slack IP laws and weak enforcement discourage animation players in India to produce their own IP. Moreover, it also discourages International Players, who are generally very protective of their IPs, to outsource to India. Cultural Constraint Unlike mature markets abroad, where animation is seen by everyone, Indians still have the animation-is-for-kids mindset. This impedes the growth of domestic market in India. Lack of Government Support Competing outsourcing destinations e.g. Canada, UK have signed tax treaties with the US. This encourages growth of animation in the country. Indian animation players lack any such Government support either through tax rebates or grants.

5. Animation Entertainment (VFX) The Entertainment Visual Effects (VFX) industry has registered an unprecedented growth of 53% over 2005-2009 and is estimated at USD 83 million in 2009. This segment is further expected to grow at 28% p.a. to reach USD 223 million by 2013. 40% of revenues of VFX Players accrue from work done for domestic market.

5.1 Growth Indicators VFX growth is expected to be propelled by demand from both the domestic market and the overseas market.

Domestic Demand

Increased adoption of VFX and an increase in VFX budgets in movies are expected to drive the domestic demand.

Increasing no. of movies with greater VFX Usage

Success of movies with VFX Usage and entry of comics players in the movie space are

expected to drive the usage of VFX in movies in India. Indian film industry produces maximum number of movies in a year globally. 1325 movies were released in 2008, this no. having grown from 1016 releases in 2006 (Refer Exhibit 16). Usage of VFX in Indian films has considerably increased: VFX has been used in a lot of recent releases e.g. New York, Taare Zameen Par, Rab Ne Bana Dee Jodi, Jodhaa Akbar. Moreover, the movies which have used VFX extensively have been amongst the top grossers of their respective launch years (Refer Exhibit 39). The success of these movies at box office is expected to be a strong driver for production houses to have significant VFX content in their upcoming movies. Entry of comics players in the movie space: In the US, on an average (2004-2009), six movies have been produced every year, which are based on comics or graphic novels.

This trend could catch up in India as well, as some players are already planning to make movies based on comic characters.

Increase in VFX budgets

The Indian movies have very low budgets for visual / special effects. On a VFX budget index, India is way below the US levels. The VFX budget in Hollywood ranges from 3.5 million to 8.8 million, whereas the Indian film industry is typically spending a maximum of USD 0.20 million only for Visual Effects. Increase in VFX Budgets for the Indian movies is expected to boost the Entertainment VFX segment in India.

Pre-Visualization Trend

Pre-Visualization trend is a technique where-in the shots can be visualized on computers before they are actually shot. This increases the efficiency of production and reduces cost of production. Growth of this trend would contribute to increased overall usage of visual effects.

Increased usage in broadcast and advertising

Usage of VFX in broadcast helps in significant reduction of costs. Its usage brings down the set creation costs for a broadcast by almost 60-65%, particularly for mythological shows. It also helps in costs savings of 30-40% for commercials. Demand from Overseas Increased usage of VFX and increased outsourcing are expected to drive higher demand from overseas markets:

Increased VFX Usage

The VFX extensive movies overseas have done exceptionally well at box office. Most of the movies which had significant VFX were amongst the top five grosser for that year (Refer Exhibit 42). Whopping success of the VFX extensive movies is expected to drive the VFX usage in other movies as well.

Increased outsourcing Increasing cost pressures on production studios overseas, coupled with the „cost savings‟ offered by Indian players and growing capability of Indian players in VFX is set

to increase the outsourcing of VFX work to India. The Indian players are also increasing their presence overseas to tap the international market and build an outsourcing pipeline

for their Indian studios:Century Communications Limited (CCL) promoted Pixion has acquired two Londonbased studios, Men-From-Mars and Molinare Pixion also plans to acquire a studio in Los Angeles. The Tata Group promoted Tata Elxsi has launched a new facility of Visual Computing Labs (VCL) in Los Angeles, aiming to expand its footprint in the overseas markets.

5.2

Revenue Model

The revenue model used for Animation VFX is „Work for Hire‟ model, where revenues are generally realized on a per hour basis.

  • 5.3 Key Players

Indian VFX is a fragmented industry, with the top 5 players commanding ~ 20% of the overall industry. They key players in Animation VFX in India are:

Tata Elxsi

Prime Focus

DQ Entertainment

Pixion

Prana

  • 5.4 Challenges

Major challenges faced currently by the VFX industry are:

Lack of Skilled Manpower Similar to animation entertainment, there is a considerable shortage of skilled manpower for VFX in India. There are very few institutes that provide formal courses on VFX. The studios therefore have to employ people with inadequate skills, which lead to an inferior quality of work.

Lower budgets for VFX in India

The average budget for VFX in Indian movies is almost one fifth of that in a Hollywood movie. The average budget of a Hollywood movie ranges from USD 3.5 million to USD

  • 8.8 million, whereas, the Indian movies have an average VFX budget of USD 70,000 to

USD 150,000. This limits the quality of VFX in the movie.

Categorization of VFX in India as a post production activity VFX is used at all stages in Hollywood, whereas, it‟s still considered as a „postproduction‟

activity in India. The quality difference between a Hollywood movie and an Indian movie can be attributed to some extent to the limited usage of VFX in Indian movies. The limited usage of VFX results in limiting its scope and ability to deliver high quality.

Lack of Government Support Similar to Animation Entertainment, the Entertainment VFX segment may be boosted by Government support in the form of tax rebates or grants.

6. Custom Content Development Custom Content Development, estimated at ~ 295 USD Million (2009) has grown at 35% p.a. (2005-09) and is expected to continue its growth at a healthy rate of 23% p.a. (2009- 13) to reach USD 685 Million by 2013.

As per leading players in the industry, >90% of custom content development in India is outsourcing work.

Custom Content Development initiates with sourcing of the content and preparation of the script / storyboard followed by creation of the content and migration of the same on the required platform. The platform on which the content finally resides may be a CD / DVD, website, or a Learning management System depending upon the customer‟s requirements. Educational institutes: Schools (K-12), Higher Education Institutes for their e-Learning requirements, Corporate for their employee training / internal communication / web-site designing services / marketing collateral and industries such as Aviation, Defence, for special training requirements are customers of this segment.

6.1 Growth Indicators

Demand from overseas is expected to be driven by greater outsourcing of custom content development. The domestic market which constitutes only 10% of revenues currently (Refer Exhibit 44), is expected to increase its share, driven by increased adoption of e-Learning by corporate and higher education institutes in India.

Demand from Overseas

Major markets for e-Learning globally are the US and select European nations across both educational institutions and Corporate Sector for training purposes. Demand from overseas is expected to increase on account of the following factors:

Increased outsourcing of Learning Content Development by Corporate Sector Custom Content Development outsourcing by the Corporate Sector in the US has seen an increasing trend from 2006 to 2008. Exhibit 46(a) and 46(b) show the percentage of organizations across specific sectors, which outsourced their training content development requirements.

These exhibits clearly show: While the outsourcing trend for certain sectors has stayed the same, outsourcing trend for certain other sectors viz. Healthcare / Medical, BFSI and Business Services / Consulting has increased significantly. As the organizations focus

more on „Cost Savings‟, this trend is expected to continue.

Increased requirement for content Content requirement for corporate e-Learning is expected to grow at 11% p.a. (2009-13).

This increased requirement for content, along with greater propensity of corporate in the US to outsource custom content development promises a large opportunity for custom content development companies in India. Domestic Demand E-Learning Demand from the Corporate Sector As per a survey conducted by Tata Strategic Management Group for specific industry

verticals, adoption of e-Learning among small and mid-sized organizations in India is very low. However, most of these small and mid sized companies have shown willingness to adopt e-learning, the main drivers being cost savings and wider reach.

This clearly shows the immense potential that e-learning holds in India among corporate.

Adoption of e-Learning by Higher Education Institutes

Current adoption of e-Learning by higher education institutes in India is abysmally low. Compared to the US where close to 95% of the higher education institutes have adopted e-learning solutions, a sample survey across a Tier 1 city in India reveals the adoption of e-Learning to be less than 15% by Indian institutes. With increasing awareness of the elearning models and its associated advantages, adoption of e-learning is expected to increase in Indian higher education institutes.

In fact, a large percentage of Institutes offering professional courses showed high willingness towards adoption of e-learning solutions. These e-Learning solutions are expected to improve quality of learning and differentiate the Institute from the others.

This clearly shows the large potential that higher education institutes hold for e-Learning players in India. Such increased adoption of e-Learning solutions would lead to

requirement of content that would positively impact animation players‟ revenues.

Increased Government focus on Information, Communication, Technology (ICT) for schools

The Indian Government has been focusing on ICT in schools, which is seen in their increasing spends (Refer Exhibit 53). This spend is expected to move up even further, thus presenting an increased business opportunity for the e-learning players and content providers . Increased Online Advertising

Online advertising in India is expected to show a growth of 28% p.a. (2009-2013). This is expected to lead to greater demand for web-design services. Animation players providing such web-design services would find this a positive development.

  • 6.2 Service Models

Players providing custom content development follow different service models, which lie along different parts of the value chain. Depending upon the service model that a player adopts, he can be present across the value chain or in certain specific parts of it.

Companies typically follow different service models, varying from one project to the other.

  • 6.3 Revenue Model

Players in the Custom Content Development space can realize revenues from different

sources, depending upon the model that they adopt:

  • 6.4 Key Players

  • 6.5 Challenges

While custom content development holds a large potential in India, there are numerous

challenges which need to be overcome for it to realise its potential:

Lack of subject matter experts

Engagements for custom content development may be specific to a particular subject / course. To make the content / instructional design relevant and interesting, the e- Learning custom content developer ropes in subject matter experts. It becomes challenging for the service provider to recruit or empanel subject matter experts for niche courses. In addition, growth of the domestic sector faces the following challenges:

Cultural Constraint

The Indian mindset lays significant importance on human interface for teaching or training. Therefore, they find it difficult to accept an e-learning product replacing face-toface interaction, partially or fully . Lack of Government Thrust

Most of the institutes that are government aided do not have enough budgets to afford elearning. As there is a cap on the maximum fee that may be charged by these institutes, this extra cost of e-learning cannot be passed on to the students. Such institutes shall be able to adopt e-Learning only if there is enough thrust from the Government towards the same.

7. Gaming Industry

  • 7.1 Global Gaming Industry

The global gaming industry is estimated at ~ USD 40 billion (CY 2009E) and is expected

to grow at 10% p.a. to reach USD 59 billion by 2013. Key segments for gaming are Console Gaming, PC Gaming, Online Gaming and Mobile Gaming. North America, Western Europe and Japan lead the gaming market. However, China is the fastest growing market especially for online gaming.

  • 7.2 Indian Gaming Industry

The Indian gaming market is estimated at ~ USD 239 million (CY 2009) and expected to show a CAGR of ~ 53% to reach USD 1.3 billion by 2013.

This includes the work done by the Indian operations of the Gaming Players. This represents revenues from both the consumer market and gaming services. Gaming consumer market in India comprises:

PC Gaming: Revenues from the gaming software sold through CDs (including

Outsourcing development services

legitimate, grey and pirated markets) Mobile Gaming: Software revenues through mobile downloads

Console Gaming: Revenues from sale of hardware such as gaming consoles

(legitimate and grey markets) Online Gaming: Advertising and subscription revenues from online games

Gaming services market in India comprises:

Ancillary services such as voice and email BPO support to MMOG (Massive Multiplayer Online Games) gamers worldwide, porting, testing, etc.

7.2.1 Key Segments and Value Chain

Among the various segments, in India, Console Gaming is the largest with 42% of the market share (CY 2009).

There are multiple stages involved in gaming, right from concept creation and feasibility testing to final testing.

It is the development and post development activities, as shown in Exhibit 62(a) which are outsourced. The Indian gaming players play a limited role in concept creation and pre-production. It is limited to a handful of players, who develop their own games, primarily for the Mobile and Online platforms.

7.3 Console Gaming Indian console gaming market is estimated at ~ USD 97 million (2009) and expected to grow at 50% p.a. to reach ~ USD 489 million by 2013. A significant percentage of the console gaming consumer revenues (Refer Exhibit 63) is shared with the console

hardware manufacturers / software publishers: International Players viz. Sony, Microsoft, Nintendo, Ubisoft, Electronic Arts etc. Moreover, the margins involved in this

distributionbusiness are very low. Hence, it is the „Consumer Gaming Services‟ market which

has been analysed from the growth perspective.

7.3.1 Growth Indicators

Currently, the revenues from console game development services are only ~ USD 7 million. These revenues are completely derived from providing services to international companies. It is the growth of console gaming overseas and extent of outsourcing to India, which would determine the growth of console gaming services in India.

Increase in production of console games overseas

Global console software market is expected to grow at 11% p.a. till 2010 (Refer Exhibit 64). This implies a greater need for game development services, which indicates a

growing opportunity for Indian console gaming services‟ players.

Increase in outsourcing to India

There is a significant cost differential between the production costs in India and that in US. Nasscom estimates that it costs USD 11 million to 18 million in India for a console NGN (Next Generation) game development compared to USD 18 million to 44 million in US for the similar work. Growth of console software globally coupled with the high cost savings offered by Indian console game services indicates large opportunity for gaming service providers in India.

7.4 Mobile Gaming

Indian mobile gaming market is estimated at ~ USD 66 million (2009) and expected to grow at 66% p.a. to reach ~ USD 496 million by 2013. Unlike console gaming, which is completely dominated by games from international publishers, mobile gaming consumer market in India comprises games from both the Indian publishers (e.g. Indiagames, Mobile2win) and overseas publishers. Mobile consumer gaming revenues in India (Refer Exhibit 66) includes the consumption of games from international and Indian publishers.

In India, Indian mobile gaming players earn revenues from Distribution of mobile games for international publishers (Small percentage of the overall revenue accrues to the Indian gaming player with a low profit margin) and Publishing their own games and